Problem 1: Described below are certain transactions of Edwardson Corporation. The company uses the periodic inventory system.
1. On February 2, the corporation purchased goods from Martin Company for $82,300 subject to cash discount terms of 3/10, n/30. Purchases and accounts payable are recorded by the corporation at net amounts after cash discounts. The invoice was paid on February 26.
2. On April 1, the corporation bought a truck for $61,000 from General Motors Company, paying $4,000 in cash and signing a one-year, 10% note for the balance of the purchase price.
3. On May 1, the corporation borrowed $87,600 from Chicago National Bank by signing a $96,720 zero-interest-bearing note due one year from May 1.
4. On August 1, the board of directors declared a $306,600 cash dividend that was payable on September 10 to stockholders of record on August 31.
Instructions
(a) Make all the journal entries necessary to record the transactions above using appropriate dates.
(b) Edwardson Corporation's year-end is December 31. Assuming that no adjusting entries relative to the transactions above have been recorded, prepare any adjusting journal entries concerning interest that are necessary to present fair financial statements at December 31. Assume straight-line amortization of discounts.
Problem 2: Below is a payroll sheet for Otis Import Company for the month of September 2014. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% FICA tax on employee and employer on a maximum of $113,700. In addition, 1.45% is charged both employer and employee for an employee's wages in excess of $113,700 per employee.
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Unemployment Tax
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Name
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Earnings to Aug. 31
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September Earnings
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Income Tax Withholding
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FICA
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State
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Federal
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B.D. Williams
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$ 6,620
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$ 800
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D. Raye
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6,490
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700
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K. Baker
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7,520
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1,100
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F. Lopez
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13,500
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1,900
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A. Daniels
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108,000
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13,400
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B. Kingston
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112,610
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15,100
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Instructions
(a) Complete the payroll sheet and make the necessary entry to record the payment of the payroll (ABOVE).
(b) Make the entry to record the payroll tax expenses of Otis Import Company.
(c) Make the entry to record the payment of the payroll liabilities created. Assume that the company pays all payroll liabilities at the end of each month